157

CHAPTER V

COST AND RETURNS ANALYSIS

5.1. Introduction

5.2. The Establishment Cost of Coconut Cultivation

5.3. Cost of Coconut Cultivation

5.4. Productivity and Unit Cost of Production of Coconut

5.5. Income Measures Over Different Cost Concepts

5.6. Functional Analysis

5.7. Estimated Production Function of Coconut for Marginal

Farmers

5.8. Estimated Production Function of Coconut for Small Farmers

5.9. Estimated Production Function of Coconut for Large Farmers

5.10. Returns to Scale

5.11. Resource Use Efficiency

5.12. Capital Productivity Analysis

158

CHAPTER V

COST AND RETURNS ANALYSIS

5.1 INTRODUCTION

An economic analysis of cost and returns, is an indicator of

profitability in farming activity. However, a general descriptive

analysis of costs and returns, is no substitute for a vigorous

production function analysis which serves well as an indicator of

the efficiency of factors’ proportion in production. Nevertheless, a

study of costs and returns, throws useful light on aspects which

need careful scrutiny in a vigorous analysis. With this in view, an

attempt was made to analyse cost and returns of coconut in the

study region of Kanyakumari District.

5.2 THE ESTABLISHMENT COST OF COCONUT CULTIVATION

The average establishment cost of coconut cultivation for

different farm groups, per acre, was worked out and the results are

presented in Table 5.1

159

TABLE 5.1

ESTABLISHMENT COST OF PRODUCTION OF COCONUT

Sl.

No Particulars

Marginal

farmers

Small

farmers

Large

farmers

Rs./Acre % Rs./Acre % Rs./Acre %

I A. Variable Cost

1. Seedlings 1003.84 0.79 926.50 0.73 712.50 0.57

2 Labour 34400.00 27.05 32160.20 25.52 29898.25 24.05

3 Manure 14418.43 11.34 12615.70 9.91 10129.29 8.15

4 Fertilizer 2660.32 2.09 2510.64 1.97 2267.98 1.82

5 Pesticide 750.15 0.59 715.78 0.56 690.60 0.56

6 Interest on Working capital

9315.73 7.33 8562.54 6.72 7647.26 6.15

7 Total Variable

Cost 62548.47 49.19 57491.36 45.14 51345.88 41.30

II B. Fixed Cost

8 Land revenue tax 750.00 0.59 750.00 0.59 750.00 0.60

9 Rental Value of land

45000.00 35.39 45000.00 35.33 45000.00 36.19

10 Other Fixed

Cost 18853.35 14.83 24117.25 18.94 27242.50 21.91

11 Total Fixed Cost 64603.35 50.81 69867.25 54.86 72992.50 58.70

12 Total

Establishment

cost

127151.82 100.00 127358.61 100.00 124338.38 100.00

13 Less Misc. Receipts

7475.81 11009.95 15762.6

14 Net

establishment

cost

11967.01 116348.66 108475.78

15

Annual share of net

establishment cost

1595.68 1551.32 1447.68

Source: Primary data

It could be observed from Table 5.1 that the average total

establishment cost of coconut cultivation for the first five years

worked out to Rs. 127151.82 per acre in the case of marginal

farmers, Rs. 127358.61 in the case of small farmers and

Rs. 124338.38 in the case of large farmers. The net establishment

160

cost, calculated by deducting the miscellaneous receipts from the

total establishment cost, worked out to Rs. 11967.01 per acre in the

case of marginal farmers, Rs. 116348.66 in the case of small

farmers and Rs. 108475.78 in the case of large farmers.

The annual share of net establishment cost, in the case of

marginal farmers was Rs. 1595.68, where as it was Rs. 1551.32 in

the case of small farmers and Rs. 1447.68 in the case of large

farmers. While comparing the net establishment cost and the

annual share of net establishment cost, it was found that the

marginal farmers ranked first followed by the small and large

farmers.

The total variable cost worked out to Rs. 62548.47,

Rs. 57491.36 and Rs. 51345.88 respectively for marginal, small and

large farmers. In other words, the total variable cost accounted for

49.19 per cent in the case of marginal farmers, 45.14 percent in the

case of small farmers and 41.30 per cent in the case of large

farmers. The contribution of fixed cost to the total establishment

cost was Rs. 64603.35 (50.81%) for marginal farmers, Rs. 69867.25

(54.86%) for small farmers and Rs. 72992.50 (58.70%) for large

farmers.

In the case of marginal farmers, of the total variable costs,

human labour accounted for the maximum share of Rs. 34400

(27.05%) followed by cost of manure that accounted for

Rs. 14418.43 (11.34%). The interest on working capital, borrowed

161

for the purpose of cultivation, was estimated to be Rs. 9315.73

(7.33%) followed by cost of fertilizers amounting to Rs. 2660.32

(2.09%) and seedlings amounted to Rs. 1003.84 (0.79%). Besides

these factors, the cost of pesticides accounted for about Rs. 750.15,

which constituting 0.59 per cent of the total variable costs.

In the case of small farmers, of the total variable costs,

human labour accounted for the maximum share of Rs. 32160.20

(25.25%) followed by cost of manure amounting to Rs. 12615.70

(9.91%). The interest on working capital, borrowed for the purpose

of cultivation was estimated to be Rs. 8562.54 (6.72%) followed by

cost of fertilizer which amounted to Rs. 2510.64 (1.97%) and

seedlings amounting to Rs. 926.50 (0.73%). Besides these factors,

the cost of pesticides accounted for about Rs. 715.78 which was

0.56 per cent of the total variable costs.

In the case of large farmers, of the total variable costs, human

labour accounted for the maximum share of Rs. 29898.25 (24.05%)

followed by cost of manure Rs. 10129.29 (8.15%). The interest on

working capital borrowed for the purpose of cultivation was

estimated to be Rs. 7647.26 (6.15%) followed by cost of fertilizers

amounting to Rs. 2267.98 (1.82%) and seedlings amounting to

Rs. 712.50 (57%). Besides these factors the cost of pesticides

accounted for about Rs. 690.60 which constituted 0.56 per cent of

the total variable costs.

162

On the whole, it was found that, human labour accounted for

the maximum share of variable costs in the case of all the three

categories of farmers.

The total fixed cost worked out to Rs. 64603.35,

Rs. 69867.25 and Rs. 72992.50 respectively for marginal farmers,

small and the large farmers. In other words, the total fixed cost

accounted for 50.81 per cent in the case of marginal farmers, 54.86

per cent in the case of small farmers and 58.70 per cent in case of

the large farmers. The contribution of fixed cost to the net

establishment cost was Rs. 11967.01 for marginal farmers,

Rs. 116348.66 for small farmers and Rs. 108575.78 for large

farmers.

In the case of marginal farmers, of the total fixed costs, rental

value of land accounted for the maximum share of Rs. 45000

(35.39%) followed by other fixed costs for Rs. 18853.35 (14.83%).

Besides these factors, land revenue tax accounted for about Rs. 750

constituting 0.59 per cent of the total fixed costs. In the case of

small farmers, of the total fixed costs, rental value of land

accounted for the maximum share of Rs. 45000 (35.33%) followed

by other fixed costs for Rs. 24117.25 (18.94%). Besides these

factors land revenue tax accounted for about Rs. 750 constituting

0.59 per cent of the total fixed costs. In the case of large farmers, of

the total fixed costs, rental value of land accounted for the

maximum share of Rs. 45000 (36.19%) followed by other fixed costs

163

for Rs. 27242.50 (21.91%). Besides these factors, land revenue tax

accounted for about Rs. 750 constituting 0.60 per cent of the total

fixed costs.

5.3 COST OF COCONUT CULTIVATION

The average cost of coconut cultivation for different farm

groups per acre was worked out and the results are presented in

Table 5.2.

TABLE 5.2

COST OF PRODUCTION OF COCONUT

Sl.

No Particulars

Marginal

farmers

Small

farmers

Large

Farmers

Rs./Acre % Rs./Acre % Rs./Acre %

I A. Variable Cost

1. Labour cost 11814.10 36.65 10478.13 33.57 8871.64 29.14

2 Cost of manure 3649.20 11.32 3010.61 9.65 3338.79 10.97

3 Fertilizer cost 1298.50 4.03 1147.25 3.68 1199.66 3.94

4 Cost of pesticide 355.00 1.10 520.98 1.67 500.07 1.64

5 Interest on working

Capital 599.09 1.86 530.49 1.70 486.86 1.60

6 Total Operation

and maintenance cost

17715.89 54.96 15687.46 50.26 14397.02 47.29

II B. Fixed Cost

7 Land revenue tax 150.00 0.47 150.00 0.48 150.00 0.49

8 Rental Value of land

9000.00 27.92 9000.00 28.83 9000.00 29.56

9 Other Fixed Cost

3770.67 11.70 4823.45 15.45 5448.50 17.90

10 Annual share of

net establishment cost

1595.68 4.95 1551.32 4.97 1447.68 4.76

11 Total fixed cost 14516.35 45.04 15524.77 49.74 16046.18 52.71

12 Total cost of production

32232.24 100.00 31212.23 100.00 30443.20 100.00

Source : Primary data

164

It could be observed from Table 5.2, that the average total

cost of coconut production worked out to Rs. 32232.24 per acre in

the case of marginal farmers, Rs. 31212.23 in the case of small

farmers and Rs. 30443.20 in the case of large farmers. In other

words, the total cost of coconut production was maximum in the

case of marginal farmers, followed by small farmers and large

farmers.

The total operational and maintenance costs worked out to

Rs. 17715.89, Rs. 15687.46 and Rs. 14397.02 respectively for

marginal, small and large farmers. In other words, the total

operational and maintenance cost accounted for 54.96 per cent in

the case of marginal farmers, 50.26 per cent in the case of small

farmers and 47.29 per cent in the case of large farmers. The

contribution of fixed cost to the total operational and maintenance

cost was Rs. 14516.35 (45.04%) for marginal farmers, Rs. 15524.77

(49.74%) for small farmers and Rs. 16046.18 (52. 71%) for large

farmers.

In the case of marginal farmers, of the total operational and

maintenance cost, human labour cost accounted for the maximum

share of Rs. 11814.10 (36.65%) followed by cost of manure for

Rs. 3649.20 (11.32%). The cost of fertilizer was found to be

Rs. 1298.50 (4.03%) and the interest on working capital borrowed

for the purpose of cultivation was estimated to be Rs. 599.09

(1.86%). Besides these factors, the cost of pesticides accounted for

165

about Rs. 355.00 which was 1.10 per cent of the total operational

and maintenance costs.

In the case of small farmers, among the total operational and

maintenance costs, human labour cost accounted for the maximum

share of Rs.10478.13 (33.57%) followed by cost of manure for

Rs.3010.61 (9.65%). The cost of fertilizer was found to be

Rs.1147.25 (3.68%) and the interest on working capital borrowed

for the purpose of cultivation was estimated to be Rs.530.49

(1.70%). Besides these factors, the cost of pesticides, accounted for

about Rs.520.98 which constituted 1.67 per cent of the total

operational and maintenance costs.

In the case of large farmers, of the total operational and

maintenance costs, human labour cost accounted for the maximum

share of Rs. 8871.64 (29.14%) followed by cost of manure for

Rs. 3338.79 (10.97%). The cost of fertilizer was found to be

Rs. 1199.66 (3.94%) and the cost of pesticides used during

cultivation was estimated to be Rs. 500.07 (1.64%). Besides these

factors, the interest on working capital, borrowed for the purpose of

cultivation, accounted for about Rs. 486.86 which constituted 1.60

per cent of the total operational and maintenance costs.

To sum up, human labour accounted for the maximum share

of operational and maintenance cost in all the three categories of

farmers.

166

The total fixed costs, per acre, worked out to Rs. 14516.35,

Rs. 15524.77 and Rs. 16046.18 respectively for marginal, small and

the large farmers. In other words, the total fixed cost accounted for

45.04 per cent in the case of marginal farmers, 49.74 per cent in

the case of small farmers and 52.71 per cent in the case of the large

farmers. The contribution of fixed cost to the total cost of

production was Rs. 32232.24 for marginal farmers, Rs. 31212.23

for small farmers and Rs. 30443.20 for larger farmers.

In the case of marginal farmers, of the total fixed costs, rental

value of land accounted for the maximum share of Rs. 9000.00

(27.92%) followed by other fixed costs of Rs. 3770.67 (11.70%) and

the annual share of net establishment cost accounted for

Rs.1595.68(4.95). Besides these factors, land revenue tax

accounted for about Rs. 150.00 which contributed 0.47 per cent of

the total fixed costs. In the case of small farmers, of the total fixed

costs, rental value of land accounted for the maximum share of

Rs. 9000 (28.83%) followed by other fixed costs of Rs. 4823.45

(15.45%) and the annual share of net establishment cost accounted

for Rs. 1551.32 (4.97%). Besides these factors, land revenue tax

accounted for about Rs. 150 which contributed 0.48 per cent of the

total fixed costs. In the case of large farmers, of the total fixed costs,

rental value of land accounted for the maximum share of Rs. 9000

(29.56%) followed by other fixed costs of Rs. 5448.50 (17.90%) and

the annual share of net establishment cost accounted for

167

Rs.1447.68 (4.7%). Besides these factors, land revenue tax

accounted for about Rs. 150 which contributed 0.49 per cent of the

total fixed costs.

5.4 PRODUCTIVITY AND UNIT COST OF PRODUCTION OF

COCONUT

The average annual productivity and cost of production of

coconut were worked out and the results are presented in Table 5.3.

TABLE 5.3

AVERAGE ANNUAL PRODUCTIVITY AND UNIT COST OF

PRODUCTION

Sl.

No Particulars Marginal

farmers Small

farmers Large

farmers

1 Trees (nos/acre) 91 85 75

2 Yield (nuts/acre) 6972 7125 7724

3 Yield per tree (nuts

per annum) 77 84 103

4 Total Cost of

cultivation (Rs./acre) 32232.24 31212.23 30443.2

5 Cost of Production

(Rs /nut) 4.62 4.38 3.94

Source: Primary data

It is evident from Table 5.3, that the total number of trees in

an acre ranged from 75 trees in the case of large farmers to 91 trees

in the case of marginal farmers. With regard to yield, number of

nuts from one acre of coconut plantation, ranged from 7724 nuts

per acre in the case of large farmers, to 6972 nuts per acre in the

168

case of marginal farmers. The yield of coconut per tree, in terms of

number of nuts per annum was the maximum in the case of large

farmers with 103 nuts, followed by 84 nuts in the case of small

farmers and 77 for marginal farmers.

The results of the analysis also indicated that the total cost of

cultivation of coconut ranged from Rs. 32232.24 per acre in the

case of marginal farmers to Rs. 30443.2 in the case of large

farmers. The cost of production per nut, was Rs. 4.62 for marginal

farmers, 4.38 for small farmers and Rs. 3.94 for large farmers.

Scientific method of cultivation, adopted by large farmers

must have been the main reason for increasing output and

reducing the cost of production.

5.5 INCOME MEASURES OVER DIFFERENT COST CONCEPTS

The various measures of return (income) over different cost

concepts were measured and the details are presented in Table 5.4.

169

TABLE 5.4

STATEMENT OF INCOME IN COCONUT CULTIVATION

(Rs./Acre/annum)

Sl. No Particulars Marginal farmers

Small farmers

Large farmers

1 Gross sales 39740.40 40897.50 44413.00

2 Less –Marketing cost 847.35 802.69 763.29

3 Gross returns 38893.05 40094.81 43649.71

4 Less-Variable cost 17715.89 15687.46 14397.02

5 Contribution 21177.16 24407.35 29252.69

6 Less-Fixed cost 14516.35 15524.77 16046.18

7 Net Profit 6660.81 8882.58 13206.51

8 Net profit ratio 17.13 22.15 30.26

9 Gross selling price 5.70 5.74 5.75

10 Net Selling price 5.58 5.63 5.65

Source: Primary data

It could be observed from Table 5.4, that the gross sales

proceeds of coconut ranged from Rs. 44413 in the case of large

farmers to Rs. 39740.40 in the case of marginal farmers with the

highest gross return of Rs. 43649.71 for large farmers, followed by

Rs. 40094.81 for small farmers and Rs. 38893.05 for marginal

farmers in the study area. Both the marketing cost and variable

cost were the highest i.e Rs. 847.35 and Rs. 17715.89 respectively

for marginal farmers and Rs. 802.69 and Rs. 15687.46 respectively

for small farmers.

170

The amount of contribution was estimated to be the

maximum of Rs. 29252.69, Rs. 24407.35 and Rs. 21177.16

respectively in the case of large farmers, small farmers and

marginal farmers. Similarly, the amount of fixed cost of production

of coconut also ranged from Rs. 16046.18 in the case of large

farmers and Rs. 14516.35 in the case of the marginal farmers. But

the amount of Rs. 15524.77 was contributed as fixed cost for the

small farmers.

The net profit ranged between Rs. 13206.51, the highest

among large farmers, and the lowest of Rs. 6660.81 among

marginal farmers. The net profit ratio was the highest in the case of

large farmers i.e 30.26 and the lowest of 17.13, in the case of

marginal farmers and 22.15 in the case of the small farmers. The

gross selling price and the net selling price were calculated as 5.70,

5.74, 5.75 and 5.58, 5.63 and 5.65 respectively in the case of

marginal farmers, small farmers and large farmers.

5.6 FUNCTIONAL ANALYSIS

5.6.1. Production Function Analysis

The costs and return analysis showed that cultivation of

coconut was profitable. The question whether there was any scope

to increase the net returns per acre, could be answered by

analyzing the resource-use-efficiency.

171

Among the different types of production functions, Cobb-

Douglas Type Production Function (log-linear) was chosen, as it has

the following advantages:-

1. It was convenient to find out the elasticity of production

which indicates the percentage change in input.

2. The sum of production elasticities (bi) indicates the nature of

returns to scale.

5.6.2 Functional Analysis

The relationship between yield of coconut and different inputs

was studied using multiple regression analysis

The function log form is as follows:

Log Y = log a + b1 log x1 + b2logx2+……+ b6logx6 + eu

where

Y = Yield in nuts per acre

X1 = Cost of seedlings

X2 = Labour in man days, per acre

X3 = Cost of manure in rupees, per acre

X4 = Cost of fertilizer in rupees, per acre

X5 = Cost of pesticides in rupees, per acre

X6= Number of coconut trees.

U = Error term

In order to test the significance of the estimated parameters,

t-test using the following formula was used:

172

t = i

i

b

SE(b )

where

bi = Parameters to be estimated

SE(bi) = Standard Error of bi

(i.e.) ∑ bi, i = 1,2,3,4,5

if

∑ bi<1 decreasing returns to scale

∑ bi = 1 constant returns to scale

∑ bi > 1 increasing returns to scale

5.7 ESTIMATED PRODUCTION FUNCTION OF COCONUT FOR

MARGINAL FARMERS

The Cobb-Douglas Type Production Function was fitted for

marginal farmers. The results are presented in Table 5.5.

173

TABLE 5.5

ESTIMATED PRODUCTION FUNCTION OF COCONUT FOR

MARGINAL FARMERS

Sl.

No Variables Symbol

Regression

co-efficient

Standard

Error

1 Yield in nuts, per acre Y - -

2 Constant b0 3.173* 0.826

3 Cost of Seedlings X1 0.139NS 0.091

4 Labour in man days, per acre X2 0.389* 0.057

5 Cost of manure in rupees, per acre X3 0.147* 0.020

6 Cost of fertilizer in rupees, per acre X4 0.258* 0.037

7 Cost of pesticides in rupees, per acre X5 0.281NS 0.193

8 Number of coconut trees X6 -0.0657* 0.0286

Sum of elasticity co-efficients 1.1483

R2 0.819

F-test 18.759*

Source: Computed Data Note: 1. * Significant at five per cent level 2. N.S. – Not significant

Table 5.5 shows, that the value of co-efficient of multiple

determination (R2) was 0.819 indicating that 82 percent of variation

in the yield could be explained by the independent variables that

are included in the function. The regression co-efficients are partial

elasticities of production of coconut, with respect to the inputs

concerned. The yield of coconut was significantly influenced by the

level of the labour utilized. One per cent increase in the level of

labour used, keeping all other factors constant, would increase the

yield by 0.389 per cent, in its mean level. The coconut yield was

also significantly influenced by the level of total cost of fertilizer and

174

total cost of manure. The analysis indicates that every one per cent

increase in the level of fertilizer applied, ceteris paribus, could

increase the yield by 0.258 per cent from its mean level. While one

per cent increase in the level of manures used, ceteris paribus,

could increase the yield by 0.147 per cent from its mean level. The

analysis also indicates that relationship between cost of seedling

and yield was positive, but not significant statistically. Therefore,

the cost of seedling had no significant influence on the yield. The

relationship between total number of coconut trees and yield was

negative and statistically significant. It implies that one per cent

increase in the number of trees would decrease the yield by 0.0657

per cent from its mean level.

5.8 ESTIMATED PRODUCTION FUNCTION OF COCONUT FOR

SMALL FARMERS

The long-linear production function was estimated for small

farmers and the results are presented in Table 5.6.

175

TABLE 5.6

ESTIMATED COBB-DOUGLAS PRODUCTION FUNCTION FOR

SMALL FARMERS

Sl.

No Variables Symbol

Regression

co-efficient

Standard

Error

1 Yield in nuts, per acre Y - -

2 Constant b0 6.611 0.92

3 Cost of Seedlings X1 0.392NS 0.438

4 Labour in man days, per acre X2 0.241* 0.081

5 Cost of manure in rupees, per acre X3 0.295* 0.111

6 Cost of fertilizer in rupees, per acre X4 0.199* 0.065

7 Cost of pesticides in rupees, per acre X5 0.573NS 0.524

8 Number of coconut trees X6 -0.0972* 0.041

Sum of elasticity co-efficients 1.6028

R2 0.873

F-test 14.201*

Source: Computed Data Note: 1. * Significant at five per cent level 2. N.S. – Not significant

Table 5.6 shows that the value of co-efficient of multiple

determinations (R2) was 0.873 which indicated that 87 per cent of

variation in the yield, could be explained by the independent

variables, that are included in the function. The regression

co-efficients are partial elasticities of production of coconut, with

respect to the inputs concerned. The yield of coconut was

significantly influenced by the level of the labour utilized. One per

cent increase in the level of labour used, keeping all other factors

constant, would increase the yield by 0.241 per cent in its mean

level.

176

The coconut yield was also significantly influenced by the

level of cost of fertilizer and cost of manure. The analysis indicates

that every one per cent increase in the level of fertilizer applied,

ceteris paribus could increase the yield by 0.199 per cent from its

mean level while one per cent increase in the level of manures used,

ceteris paribus, could increase the yield by 0.295 per cent from its

mean level. The analysis also indicates that the relationship

between the cost of seedlings and yield was positive, but not

significant statistically. Therefore, the cost of seedlings had no

significant influence on the yield. The relationship between the

total number of coconut trees and yield was negative and

statistically significant. It implies that one percent increase, in the

number of trees, would decrease the yield by 0.0972 per cent from

its mean level.

5.9 ESTIMATED PRODUCTION FUNCTION OF COCONUT FOR

LARGE FARMERS

The long-linear production function was estimated for large

farmers and the results are presented in Table 5.7.

177

TABLE 5.7

ESTIMATED COBB-DOUGLAS PRODUCTION FUNCTION FOR

LARGE FARMERS

Sl.

No Variables Symbol

Regression

co-efficient

Standard

Error

1 Yield in nuts, per acre Y - -

2 Constant b0 0.912 0.294

3 Cost of Seedlings X1 0.331NS 0.262

4 Labour in man days, per acre X2 0.89* 0.024

5 Cost of manure in rupees, per acre X3 0.143* 0.033

6 Cost of fertilizer in rupees, per acre X4 0.237* 0.079

7 Cost of pesticides in rupees, per acre X5 0.731NS 0.698

8 Number of coconut trees X6 0.0606NS 0.246

Sum of elasticity co-efficients 1.4704

R2 0.846

F-test 26.74*

Source: Computed Data Note: 1. * Significant at five per cent level 2. N.S. – Not significant

Table 5.7 shows that the value of co-efficient of multiple

determinations (R2) was 0.846 which indicates that 85 per cent of

variation in the yield could be explained by the independent

variables, that are included in the function. The regression

co-efficients are partial elasticities of production of coconut with

respect to the inputs concerned. The yield of coconut was

significantly influenced by the level of the labour utilized. One

percent increase in the level of labour used, keeping all other

factors constant, would increase the yield by 0.89 per cent in its

mean level.

178

The coconut yield was also significantly influenced by the

level of cost of fertilizer and cost of manure. The analysis indicates

that every one per cent increase in the level of fertilizer applied

ceteris paribus, could increase the yield by 0.237 per cent from its

mean level, while one per cent increase in the level of manures used

ceteris paribus, could increase the yield by 0.143 per cent from its

mean level. The analysis also indicates that the relationship

between the cost of seedlings and yield was positive, but not

significant statistically. Therefore, the cost of seedlings had no

significant influence on the yield. The relationship between the

total number of coconut trees and yield was positive but statistically

not significant. Therefore, the total number of coconut trees had no

significant influence on the yield.

5.10 RETURNS TO SCALE

The sum of elasticities of resources is an indicator of the

returns to scale. The analysis of the returns to scale, for different

groups, were worked out and the results are presented in Table 5.8.

179

TABLE 5.8

NATURE OF RETURN TO SCALE

Category Sum of Production

Elasticities

Nature of returns to

scale

Marginal farmers 1.1483 Increasing

Small farmers 1.6028 Increasing

Large farmers 1.4704 Increasing

Source: Computed Data Table 5.8 shows, that the sum of the elasticities were 1.1483

in marginal farmers, 1.6028 in small farmers and 1.4704 in large

farmers, in coconut cultivation in the study region. It has been

found that, there is no farm which has less than unity of elasticity.

On the other hand, the sum of elasticities was greater than unity in

all categories. The results showed that there was increasing return

to scale in all categories of farmers in the study region.

5.11 RESOURCE USE EFFICIENCY

The marginal value productivity of resources and the cost of

those resources, would give an indication for the reallocation of

resources to maximize returns. Optimization principle in resource

allocation, suggests that the application of the resources should be

increased or decreased, till marginal value product of a resource

equates its marginal cost. In the present study, marginal value

product was calculated by using the following formula:

180

MVPj = Y

bj     PXj

,

where,

MVP = Marginal value product for inputs (Xj)

b = Estimated elasticity co-efficient of variable (Xj)

Y = Geometric mean of yield (kg)

X = Geometric mean value of variable (Xj)

P = Mean net selling price of coconut (Rs./nut)

For j = 1, 2, 3, … 5

After computing MVP of various inputs, it was divided by

marginal input cost or factor cost, to arrive at the ratio of marginal

value product to the input cost.

5.11.1 Resource Use Efficiency Among Marginal Farmers

The marginal value productivity of the resource use efficiency

among marginal farmers, was worked out from the production

function analysis and the results are presented in Table 5.9.

181

182

The results indicate that the marginal physical products of

labour, cost of manure and cost of fertilizers were 58.872, 0.306

and 1.714 respectively. The marginal value of inputs were also

Rs. 328.50, Rs. 1.71 and Rs. 9.56 respectively. It is inferred from

Table 5.9, that there was scope for increasing use of labour,

fertilizers and manures, to increase the yield of coconut further in

the case of marginal farmers, as the ratio of marginal value product

to factor cost was more than unity. It also revealed that every rupee,

additionally spent on those variables, would increase the value of

yield further by Rs. 1.53, Rs. 1.71 and Rs. 9.56 respectively.

5.11.2. Resource Use Efficiency in Small Farmers

The resource use efficiency was worked out for the small

farmers and the results are presented in Table 5.10.

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184

The results indicate that the marginal physical products of

labour, cost of manure and cost of fertilizers were 41,470, 0.725

and 1.523 respectively. The marginal value of inputs were also

Rs. 233.48, Rs. 4.08 and Rs. 8.57 respectively. It is inferred from

the Table 5.10 that there was scope for increasing use of labour,

fertilizers and manures to increase the yield of coconut further in

the case of small farmers as the ratio of marginal value product to

factor cost was more than unity. It also revealed that every rupee

additionally spent on those variables, would increase the value of

yield further by Rs. 1.09, Rs. 4.08 and Rs. 8.57 respectively.

5.11.3. Resource Use Efficiency In Large Farmers

The resource use efficiency for large farmers was analysed

and the results are presented in Table 5.11.

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186

The results indicate, that the marginal physical products of

labour, cost of manure and cost of fertilizers were 17.891, 0.356

and 1.935 respectively. The marginal value of inputs were also

Rs. 101.09, Rs. 2.01 and Rs. 10.93 respectively. It is inferred from

Table 5.11, that there was scope for increasing the use of labour,

fertilizers and manures to increase the yield of coconut further, in

the case of large farmers, as the ratio of marginal value product to

factor cost was more than unity, except labour. It is also revealed

that every rupee additionally spent on those variables, would

increase the value of yield further by Rs. 0.47, Rs.1.01 and

Rs. 10.93 respectively. In total, it can be concluded that there is

scope for increasing the coconut yield by better utilization of these

variables.

5.12 CAPITAL PRODUCTIVITY ANALYSIS

Coconut being a perennial, commercial and a food crop, the

commercial production starts from the fourth year onwards. So,

considerable investments need to be made over several years, before

the crop starts to yield. Moreover, the benefits are realized as a

stream, over a long period of time. Therefore, it is necessary to

know the present value of the expected future income, to justify the

investments made. A sound appraisal technique should be used, to

measure the economic worth of the investments made in coconut

farms.

187

5.12.1 The Analytical Frame Work

In the present study, the following capital budgeting

techniques are used to measure the economic worth of the

investments in coconut production.

To compute the pay-back period, net present value and

internal rate of return for coconut cultivation, incremental cost,

present value of cost and returns at 10 per cent discount factor

were calculated.

5.12.1.1 Pay-back Period

It measures the number of years required, to recover the

original cash outlay invested in the project. The maximum

acceptable pay back period is fixed by taking into account the

reciprocal of the cost of capital. This can be termed as the cut-off

point. The cut off year at 10 per cent cost of capital is 10 years.

Generally, a project having a pay-back period, more than the cut-off

point, is not entertained. The Pay-back period of coconut cultivation

is calculated and presented in Table 5.12.

TABLE 5.12

PAY-BACK PERIOD OF COCONUT CULTIVATION

Sl.

No

Type of

farmers

Pay-back

Period (year)

Cut off period

(year)

Accept or

reject criterion

1 Marginal 10.43 10 Acceptable

2 Small 9.75 10 Acceptable

3 Large 8.19 10 Acceptable

Source: Computed Data

188

It could be inferred from Table 5.12, that the pay-back period

of coconut cultivation was 10.43 years in the case of marginal

farmers 9.75 years in the case of small farmers and only 8.19 years

in the case of large farmers. The pay-back period has been less

than 10 years, in all the categories of farmers, except the marginal.

As the pay-back period is less than the cut-off period, in the case of

small and large farmers, it can be decided that coconut cultivation

is viable. It is also viable in marginal farmers as the difference is

very meagre.

5.12.1.2 Net Present Value

The Net Present Value is found, by subtracting the present

value of cost from the present value of returns. A project, whose

net present value, is greater or equal to zero, is considered as a

worthy investment.

Net present value = Present value of returns – Present value of costs

Symbolically

NPV = n

t 1

Bt Ct

(1 i)t=

−

+∑ ,

where the symbols used are the same, as in the case of

benefit-cost ratio.

It is the most valid technique of evaluating an investment

project. It is generally consistent with the objective of maximizing

189

wealth. The Net Present Value of coconut cultivation was computed

and is presented in Table 5.13.

TABLE 5.13

NET PRESENT VALUE OF COCONUT CULTIVATION

Sl. No Type of farmers

Net present value

(in Rs. Per acre)

Nature of Net Present Value

1 Marginal 36329.94 Positive

2 Small 61511.31 Positive

3 Large 95988.79 Positive

Source: Computed Data

It is observed from Table 5.13, that the net present value was

estimated to be Rs. 36329.94 at 10 per cent discount rate, in the

case of marginal farmers, followed by Rs. 61511.31 in the case of

small farmers and the highest of Rs. 95988.79 in the case of large

farmers. Since the net present value is positive and large, it is

inferred that the capacity to generate more wealth is large in

coconut farms. Therefore, the investment in coconut cultivation is

economically beneficial.

5.12.1.3 Internal Rate of Return

The Internal Rate of Return is the rate of discount, at which

NPV is zero. If the IRR exceeds the cut off rate (opportunity cost of

capital) the investment is economically viable.

Symbolically,

IRR = n

t 1

Bt Ct0

(1 i)t=

−=

+∑

190

The Internal Rate of Return of Coconut Cultivation is the rate

at which the sum of discounted cash inflows, equals the sum of

discounted cash outflows. It is the maximum rate of interest, which

an organization can afford, to pay on the capital invested in a

project. The results of the Internal Rate of Return of coconut

cultivation are presented in Table 5.14.

TABLE 5.14

INTERNAL RATE OF RETURN OF COCONUT CULTIVATION

Sl. No Type of

farmers

Internal

Rate of

Return (%)

Opportunity

cost of

capital (%)

Accept or

reject

criterion

1 Marginal 14.88 10 Acceptable

2 Small 16.60 10 Acceptable

3 Large 18.96 10 Acceptable

Source: Computed Data

It is evident from Table 5.14, that the computed value of

Internal Rate of Return of Coconut cultivation was 14.88 per cent

for the marginal farmers, followed by 16.60 per cent for small

farmers and 18.96 for large farmers. As compared to the

opportunity cost of capital (cut off rate) which was taken as 10 per

cent, the rate of return on investment, made in coconut cultivation

is high. It indicates that there is economic viability of investment in

coconut cultivation.